Tag Archive for 'construction spending'

ABC Reports: Nonresidential Construction Spending Falters in August

CEU2“After a significant acceleration in spending in July, August’s report depicts a steady but unspectacular recovery.”—ABC Chief Economist Anirban Basu.

Construction_Spending_10 1Nonresidential construction spending slipped in August, according to an Oct. 1 release from the U.S. Census Bureau. Nonresidential construction spending shrank 1.2 percent on a monthly basis in August, but has still managed to expand 6 percent on a year-over-year basis. Spending for the month totaled $603.7 billion on a seasonally adjusted, annualized basis. The government also revised the July spending figure down from $617.8 billion to $611.3 billion.

“This is why it is never a good idea to get excited about one month of data,” said Associated Builders and Contractors Chief Economist Anirban Basu. “After a significant acceleration in spending in July, August’s report depicts a steady but unspectacular recovery. Based on various industry surveys, including ABC’s own confidence and backlog indicators, the steady pace of recovery will continue.

“Macroeconomic fundamentals remain promising for growth moving forward,” said Basu. “Job growth has been reasonably steady during the past 12 months and the quality of jobs added to the economy has improved during the course of the current year, which helps explain the ongoing recovery in office-related spending. Federal Reserve policy remains accommodative and interest rates remain benign, which will help support business investment, including in construction, going forward. Consumer spending also should help prompt additional construction, including in the lodging and amusement/recreation categories.”

Seven of 16 nonresidential construction subsectors posted increases in spending in August on a monthly basis.

  • Office-related construction spending grew 1.1 percent in August and is up 18.9 percent from the same time one year ago.
  • Manufacturing-related spending grew 1.7 percent on a monthly basis and is up 14.5 percent on an annual basis.
  • Lodging construction spending is up 0.9 percent on a monthly basis and is up 10.2 percent on a year-over-year basis.
  • Amusement and recreation-related construction spending grew 0.9 percent on a monthly basis and is up 3 percent from the same time last year.
  • Communication construction spending expanded 3.4 percent for the month, but is down 10.5 percent on a year-over-year basis.
  • Religious spending grew 0.9 percent for the month and is up 1.4 percent from the same time last year.
  • Sewage and waste disposal-related construction spending gained 0.8 percent for the month and has grown 3.5 percent on a 12-month basis.

Spending in nine nonresidential construction subsectors declined in August.

  • Conservation and development-related construction spending fell 2.5 percent for the month, but is up 19.8 percent on a yearly basis.
  • Health care-related construction spending fell 0.6 percent for the month and is down 6.6 percent for the year.
  • Education-related construction spending fell 2 percent for the month and is down 1.9 percent on a year-over-year basis.
  • Spending in the water supply category fell 4 percent from July and is 1.8 percent lower than at the same time last year.
  • Construction spending in the transportation category fell 2.9 percent on a monthly basis, but has expanded 3 percent on an annual basis.
  • Highway and street-related construction spending fell 0.6 percent in August and is down 0.2 percent compared to the same time last year.
  • Public safety-related construction spending fell 5 percent on a monthly basis and is down 6 percent on a year-over-year basis.
  • Power construction spending fell 3.4 percent for the month, but is 16.3 percent higher than at the same time one year ago.
  • Commercial construction spending declined 3.1 percent in August, but is up 9.4 percent on a year-over-year basis.

To view the previous spending report, click here

Wells Fargo Reports: Construction Spending Disappoints in August

Wells_Fargo_Securities_logoThe nominal value of construction spending put-in-place fell 0.8 percent in August with downward revisions to data in the previous two months. Private residential and nonresidential both posted declines.

Overall Construction Spending Weaker than Expected

Construction spending fell 0.8 percent in August to a $961.0 billion annual pace. Declines were broad based, with total residential spending down 0.1 percent and nonresidential falling 1.2 percent. Public construction outlays fell 0.9 percent in August, which was mostly due to weakness in state and local highway, street and education spending.

Although the report was weaker than expected, construction spending is well known for its wide monthly swings. That said, the overall trend still points to gradual upward momentum. Overall spending on a three-month annualized basis is up at a 0.9 percent rate, with nonresidential increasing at a 6.1 percent pace. On the other hand, residential is down 7.2 percent on a three-month annualized basis.

Private residential construction spending fell a modest 0.1 percent, with home improvement pulling the headline lower. Home improvement has declined in seven of the last eight months and is down 10.3 percent over the past year. The string of negative readings in this component suggests the pickup in home remodeling is winding down. Spending on home improvement likely peaked in December 2013 and is now down 18 percent from that high in August. Although housing market indicators remain mixed, single-family spending eked out a modest 0.7 percent increase, its second monthly gain. Multifamily construction outlays also rose in August, increasing 1.4 percent. Apartment demand remains strong, as young adults still prefer to rent rather than own, especially in gateway cities.

Private nonresidential construction spending fell 1.4 percent in August, and is now up 9.2 percent from a year earlier. Despite the decline, manufacturing, communication and lodging made the largest contributions to the headline, while power fell on the month. Manufacturing outlays have shown solid gains in recent months and are up almost 15 percent over the past year. Much of the improvement in this component is due to the shale gas boom as chemical companies that use natural gas as an energy source or as feedstock take advantage of record-low natural gas prices. Chemical manufacturing is up a whopping 57.2 percent from a year earlier and rose 3.3 percent in August. Excluding chemical manufacturing, manufacturing spending fell 0.1 percent during the month.

Looking Ahead: Nonresidential Spending Still on Track

Overall construction spending has improved at a sluggish pace but should gain traction along with better economic growth. Leading nonresidential indicators, including starts, architectural billings and the Dodge Momentum Index, suggest conditions are improving. In the months ahead, we should see increased spending from the $957 million Nordstrom Tower located in midtown Manhattan. Outlays for the second tallest building in the country will show up in residential, retail, and hotel.

1 2 3Source: U.S. Department of Commerce and Wells Fargo Securities, LLC

Wells Fargo Reports: Construction Spending Improves Marginally in April

Wells_Fargo_Securities_logoConstruction spending rose 0.2 percent in April, which was lower than the consensus estimate. Private residential and public spending rose, while private nonresidential fell for the fourth straight month.

Residential Outlays Continue to Improve

· Total construction spending rose 0.2 percent in April to a $953.5 billion annual pace with upward revisions to previous months’ data. Private residential construction spending rose just 0.1 percent on the month, with home improvements holding down the headline. However, private nonresidential outlays fell 0.1 percent on the month. The decline was concentrated in communication, power and manufacturing.

Public Spending Expected to Slow in Coming Months

· Public construction spending rose 0.8 percent in April, but could begin to falter in the coming months. The largest component of public outlays, ‘highway & street,’ is up 4.9 percent on a year-ago basis, but the expected slower pace of reimbursements this summer to states from the federal Highway Trust Fund (receives revenue from a federal fuel tax and distributes to states for infrastructure projects) could weigh down total public outlays.

Construction Spending_06022014 Construction Spending_06022014

ABC Reports: CBI Remains Virtually Unchanged In Third Quarter

Construction_Backlog_Indicator(2)YET WITH SLOW GROWTH, CONSTRUCTION OPPORTUNITIES EXIST

As the economy gradually recovers, nonresidential construction spending remains unchanged—a good sign the downturn in the industry has stopped, according to the Construction Backlog Indicator (CBI) produced by Associated Builders and Contractors (ABC). CBI also remained nearly unchanged between the second and third quarters of 2013.

“The most recent CBI reading suggests much of the growth next year is likely to occur after the first quarter of 2014, and only if a successful resolution to lingering federal budgetary issues emboldens decision-makers,” said ABC Chief Economist Anirban Basu. “Even with successful negotiations in Washington, D.C., ABC expects publicly financed segments to continue to be hamstrung by reluctant state and local government budget officials.”

Despite the fact the nation is in its fifth year of recovery, nonresidential construction spending remains roughly 20 percent below the cyclical and all-time peak achieved in October 2008.  While the most recent CBI is 2.8 percent higher compared to a year ago, it suggests the long-awaited rapid acceleration in nonresidential construction spending will not occur in the very near term.

“For the past year, businesses and consumers grappled with higher tax rates, rising interest rates, a federal shutdown, and the uncertainties associated with health care reform, sequestration and debt default.  In October, the International Monetary Fund downgraded the 2013 U.S. growth forecast from 1.7 percent to 1.6 percent,” Basu said “As if headwinds emerging from the federal government were not enough, the uncertain resolution of Detroit’s bankruptcy has induced more cautious behavior among certain large and similarly situated American cities, which continues to impact the outlook for U.S. infrastructure investment, “Basu said.

However, there is optimism in today’s CBI release. “Even slow growth leads to construction opportunities,” Basu said. “Ongoing recovery steadily produces lower vacancy rates, higher rents and more comfortable lenders. However, growth also results in higher interest rates and ABC believes this factor will begin to serve as a more meaningful speed governor in late 2014 or in 2015.”

CBI Map of Regions and Backlog MonthsThird Quarter 2012 v. Third Quarter 2013

Nov2013

Regional Highlights

  • On a quarterly basis, backlog declined in three out of four regions, with the largest quarterly decline occurring in the Northeast.
  • The South was the only region to experience expanding backlog during the third quarter, with the lengthiest backlog of any region at 9.8 months. States such as Louisiana, Georgia and Florida are experiencing significant improvement in construction industry conditions.
  • Backlog has expanded in the Northeast and South over the past year, but declined in both the West and Middle States. This is likely due to softening industrial activity in certain Middle States over the past year and softening infrastructure investment in the West.

Analysis

“Construction momentum has become increasingly divergent within regions,” Basu said. “For example, the Middle States continue to be associated with the shortest average backlog at 6.15 months; however, construction activity has been robust in North Dakota, Iowa, Wisconsin and Minnesota.

“The South and the West are likely to experience the most expansion in backlog going forward due to economic momentum in California, Washington, Idaho, Arizona and Nevada, more stable housing markets in Georgia and Florida and continued expansion of energy production in Oklahoma, Louisiana and Texas,” Basu said.

See charts and graphs

Industry Highlights

  • Backlog expanded only for the commercial/institutional segment in the third quarter, which was driven by a combination of increasing work from the nation’s health care system and from rising consumer outlays.
  • Infrastructure saw backlog decline for a third consecutive quarter, primarily due to still-wounded state and local government budgets along with erratic decision making in Washington, D.C.
  • Average backlog declined in the heavy industrial category, in part due to a weak global economy that has frustrated exporters. Manufacturing capacity utilization stands at just 76.1 percent, which is too low to permit aggressive industrial facility buildout.

Analysis

“CBI continues to reflect the U.S. recovery’s dependence on consumer credit and spending,” Basu said. “This translates into construction projects in several categories, including shopping centers, lodging, distribution and fulfillment centers.

“On the other hand, states and local governments continue to remain defensive in terms of capital budgeting, in part because of uncertainty regarding the level of future support from the federal government and pressures related to underfunded pensions and retiree health care costs,” Basu said.

See charts and graphs

Highlights by Company Size

  • Average backlog declined for the largest firms (annual revenues in excess of $100 million), which is consistent with a lack of momentum in large-scale infrastructure projects.
  • The smallest firms have experienced backlog expansion for the past two quarters due to spending growth in nonresidential construction and the recovery’s expansion to encompass a greater share of firms. Backlog now stands at 7.31 months, the highest level since the second quarter of 2011 when the stimulus package was creating opportunities for many subcontractors.
  • Over the past year, backlog has expanded for all firm size categories with the exception of the $30-$50 million category, a group that often comes into direct competition with larger firms and is also associated with more fragile banking and insurance relationships than their larger counterparts.

“Today’s nonresidential construction industry competition favors large contractors due to their resources to comply with a growing number of regulations, a capacity to enter green construction segments, a level of flexibility that permits entry into rapidly expanding geographic markets, and an ability to attract both youthful and veteran construction industry talent in an environment characterized by emerging skills shortages,” Basu said. “These firms not only have the capacity to take on the largest projects, but also have the ability to embrace the most productive (and expensive) technologies. However, there does not seem to be enough large projects to permit significant average backlog expansion even in the large firm size category.”

See charts and graphs

 

ABC Reports: Construction Spending Falls 0.6 Percent In June

CEU2“A majority of nonresidential segments experienced declining activity in June, which often represents a period of accelerating, not decelerating, activity.” —ABC Chief Economist Anirban Basu.

Construction Spending-August2013Summary

Indicating that the nation’s builders continue to struggle in the current economic environment, construction spending—which includes both nonresidential and residential sectors—was down 0.6 percent in June, according to the August 1 Construction Spending report by the U.S. Census Bureau. However, spending was 3.3 percent higher than one year ago.

Nonresidential construction spending fell 1 percent in June and declined 4 percent during the past 12 months, with spending totaling $545.8 billion on a seasonally adjusted, annualized basis.

Spending was down in both the private and public sectors in June. Private nonresidential construction slipped 0.9 percent, while public nonresidential construction spending decreased 1.1 percent for the month. On a year-over-year basis, private nonresidential construction is up 1.4 percent. Public nonresidential construction spending has dipped 9.3 percent during the past year, with the rate of decline accelerating in recent months.

Ten of 16 construction sectors posted spending losses for the month, with the largest decreases in conservation and development, down 9.4 percent; religious, down 6.8 percent; water supply, down 5.5 percent; sewage and waste disposal, down 5.3 percent; and commercial, down 5.1 percent. On a year-over-year basis, construction spending has softened in 12 subsectors. The largest losses occurred in conservation and development, down 17.2 percent; communication, down 13.8 percent; educational, down 12.6 percent; highway and street, down 12.4 percent; and religious, down 12.2 percent.

Only six of the 16 nonresidential construction sectors posted spending increases in June: power, up 3.6 percent; communication, up 2.5 percent; transportation, up 1.9 percent; health care, up 1 percent; office, up 0.8 percent; and amusement and recreation, up 0.4 percent. Four subsectors have experienced higher spending compared to one year ago, including lodging, up 22.7 percent; water supply, up 6.8 percent; power, up 5.7 percent; and transportation, up 4.3 percent.

Residential construction spending slipped 0.1 percent for the month, but is 17.6 percent higher than the same time last year.

Analysis

“Nonresidential construction spending momentum remains subdued,” said Associated Builders and Contractors Chief Economist Anirban Basu. “The nation has now entered its fifth year of economic recovery and second quarter gross domestic product estimates released yesterday were better than anticipated.

“Despite that, nonresidential construction and most of its sub-components are associated with stagnant spending or worse,” Basu added. “A majority of nonresidential segments experienced declining activity in June, which often represents a period of accelerating, not decelerating, activity.

“This would not be as problematic were the declines in spending relegated to publicly financed segments,” said Basu. “Given sequestration and constrained state and local government capital budgets, declines in publicly financed construction are not particularly surprising.

“However, the recent bankruptcy of Detroit will likely translate into conservative budgeting during the months ahead as financiers and policymakers adopt an even more cautious stance regarding major capital outlays,” Basu said.

“Construction segments heavily financed by the private sector, including commercial and lodging-related construction, were down for the month, and office-related construction spending was up only slightly,” said Basu. “The implication is that the pace of economic growth, which averaged less than 2 percent on an annualized basis during the first half of 2013, has not been enough to trigger or sustain meaningful private nonresidential construction increases.

“The conventional wisdom is that the second half of the year will be better for the broader economy, which would imply better nonresidential construction performance in 2014,” Basu said. “However, with interest rates now rising, there are reasons for contractors and other stakeholders to remain cautious.”

To view the previous Spending report, click here.